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A Crucial Six Months for Ukraine

The success of the Eastern Partnership depends on the success of Ukraine, as Ukraine is a key component of the Eastern Partnership, admitted guests of the 6th Europe-Ukraine Forum, which ended yesterday in Budapest.

May 21, 2013 - Łukasz Ciuba - Articles and Commentary

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Almost all discussions during the three-day conference raised the issue of signing the Association Agreement and the Deep and Comprehensive Free Trade Agreement (DCFTA) at the summit of the Eastern Partnership in Vilnius in November. Minister Janos Martonyi, Head of the Hungarian Diplomacy, said that according to the Hungarian government if the agreement is not signed at the summit, it will be a big failure. Ukraine should see that what is offered by this agreement is an attractive alternative, he emphasised.

Ukraine has been negotiating the Association Agreement with the European Union for several years. The Agreement was even accepted and about to be signed in March 2012, but negative developments in Ukraine (such as the Ukrainian political situation, failures to introduce legal reforms and modify the Ukrainian electoral system favouring the party being in power) prevented the Agreement from being signed. Andriy Olefirow, the Deputy Minister of Foreign Affairs of Ukraine, tried to convince everybody that the government in Kyiv has already done a lot to meet EU requirements. The Ukrainian diplomat stressed that reforms in the judiciary have been implemented.

What is more, projects to change the constitution and electoral law have been already presented to parliament. And criminal liability for accepting a bribe is also being introduced. The representatives from the ministries of foreign affairs of Finland, Slovakia, Lithuania and Hungary clearly declared their support for Ukraine’s European ambitions. Peter Burian, the Deputy Minister of Foreign Affairs of Slovakia, insisted that at this stage of the Eastern Partnership they desperately need such achievements as the signing of the Association Agreement with Ukraine. Hanns Schreiber’s opinion broke out from the tone of support for Ukraine. The representative of the European External Action Service in Kyiv recalled the pending policy issues relating to the imprisonment of the former prime minister, Yulia Tymoshenko.

Former Slovak prime minister Mikulas Dziurinda emphasised the role of political leaders in the relations between the EU and Ukraine. Dziurinda mentioned the story from 1999, when the prime minister of Slovakia spoke about the expansion of NATO with Bill Clinton. As reported, Clinton said during the meeting that the integration of the Baltic states into NATO was not possible, because Russia “would never agree”. And after five years, these countries are, in fact, members of NATO. This was possible thanks to the determination of political elites. Leaders must be consistent, because it depends on them whether Ukraine will join the EU, summarised Dziurinda.

How to encourage investment in Ukraine?

The economic and political situation in Ukraine before the November summit in Vilnius. was presented in the “Report of Transformation – Ukraine 2012” prepared by the Institute Horszeina specifically for the meeting in Budapest. According to the analysis of this think-tank from Kyiv, the last elections in Ukraine (the results strengthened the opposition parties in the Verkhovna Rada) has shown that together with the lack of interest in organised protest actions, Ukrainian society is able to make a silent revolution through the ballot box.

The report also indicates the most important problems in the Ukrainian economy. Macroeconomic figures are not optimistic: Ukraine in 2012 approached recession with GDP growth amounting only to 0.2 per cent. Thus, Kyiv has a weak position in the international ranking for the climate of investments and regulations in business activity.

Ukraine was 152nd amongst 183 countries in this year’s World Bank report “Doing business 2012”. In the opinion of the Forum’s guests, the conditions for foreign investments are discouraging, mostly due to corruption, preferences given to groups connected with the oligarchy and unstable legal conditions. For these reasons, Cyprus is the biggest foreign investor in Ukraine with 50 per cent of foreign investments. Cyprus has been an intermediary and safe place for Ukrainian businessmen for many years.

Jock Mendoza Wilson from System Capital Management indicated that big business could be a catalyst for internal changes thanks to the DCFTA agreement which gives chances to increase trade turnover between Ukraine and EU countries.

Energy independence – shale gas and cooperation with the EU

Much of the report’s agenda was devoted to the energy sector. According to the authors, for the first time Ukraine is actually preparing for the diversification of gas supplies and gaining real autonomy from Moscow, for example, by the so-called Virtual Gas Reverse Flow. The participants of the energy security debate pointed out the issue of Russia’s gas price for the Ukraine market and the reform of the whole Ukrainian gas sector. In late April, a Naftogaz state-owned company restructuring bill was submitted to the Verkhovna Rada. The purpose of the proposed amendments was to remove the legal obstacles that prevent the gas agreement with Russia being accomplished. Another important vector of Kyiv’s energy policy are the negotiations with EU member states (Poland, Slovakia and Hungary) concerning gas re-export matters.

Jeffery Piper from the European Commission’s Directorate-General for Energy presented the position of the EU in terms of Ukrainian energy security. Since 2005 the EU has firmly convinced Kyiv of integration with the European energy market. Rolandas Krisciunas, the Deputy Minister of Foreign Affairs of Lithuania, returned in his speech to the energy security topic in a more political context, quoting: “What we need is the development of gas transmission infrastructure, diversification of supply sources, transparent and independent energy market and stable regulations.” Krisciunas stated that due to a geographical location, Vilnius and Kyiv have very similar priorities in terms of energy security safeguard. Alan Ridley, professor at the City University of London, mentioned Ukraine’s great opportunity in terms of shale gas exploration and its exploitation.

Shale gas resources in Ukraine could reach in the range of 2 to 8 billion cubic metres. The world’s biggest energy companies are now engaged in shale gas exploration drilling in Ukraine (Chevron operates in the western part of Ukraine, in the Lviv and Ivano-Frankivsk oblasts, while Shell operates in the eastern part of the country, for example in Kharkiv and Donetsk oblasts). The Energy Strategy of Ukraine until the year 2030 stipulates that the shale gas production will range from 30 to 47 billion of cubic metres annually.

This year’s Forum was organised by the Ministry of Foreign Affairs of Hungary and the Institute for Eastern Studies in Warsaw – the organiser of the Economic Forum in Krynica-Zdroj.

Łukasz Ciuba works for the Foundation Institute for Eastern Studies.

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